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What's Bad for G.M. Is . . .

THE announcement last week that General Motors would cut 25,000 jobs and close several factories is yet another blow to the Goliath of automakers and its workers. But only if you work for G.M. is the company's decline a worry. For consumers, the decline can be seen as a symbol of healthy competition.

G.M.'s sales, market share and work force have all been falling for a generation, even as the quality of its vehicles has gone up. Why? Because its competitors' products have improved even more. Today's auto buyers enjoy an unprecedented array of well-built, well-equipped, reasonably priced vehicles offered by many manufacturers.

So, is what's bad for General Motors good for the country?

In the 1950's, General Motors had 46 percent of the American auto market, Ford and Chrysler 44 percent, and everyone else combined just 10 percent. Today, G.M. sells 27 percent of the cars bought in America, Ford and DaimlerChrysler combined sell 32 percent, and other automakers add up to 41 percent.

This means that the international competition, once trivial compared with General Motors, is now bigger than General Motors. Intense competition within the auto industry has resulted in steady improvements in the workmanship, performance, safety and design of cars, while holding down prices. That's the ideal outcome for consumers but not for General Motors, which, as the largest automaker, had the most to lose.

Pop-culture economics assumes that competition crushes the little guy, but in practice it's often the big enchilada that gets eaten. AT&T was besieged by competition and now barely exists. ABC, CBS and NBC have been pecked down by cable stations. Sears and Kmart, even combined into a single company, are shadows of their former selves, with falling sales and far fewer locations. In recent years, McDonald's and Microsoft have seen flat or faltering market share, as more nimble competitors move in. (Subway is close to passing McDonald's for total outlets.) How long can Wal-Mart, the world's largest corporation, maintain its invincible position? Target and Europe's Tesco are giving it Wal-Mart fits.

Competitors often concentrate their fire on the industry leader because its sales represent the richest target. And in the auto business, the old General Motors was an enchilada with extra cheese. In 1990, it sold 5 million passenger vehicles in the United States; last year, the company sold 4.6 million, and its 2005 sales are likely to be lower.

In 1990, G.M. had 35 assembly plants and employed 228,000 hourly workers; when the new round of cuts and closings take effect, General Motors will be down to perhaps 23 assembly plants and 85,000 hourly workers. The Oldsmobile brand is history, and either the Buick or Pontiac brand may follow.

In recent years, General Motors has offered cash-back deals that wreaked havoc with the company's operating margins. Last week, the company announced a fire sale, offering most vehicles at its employee discount price, about $5,000 below the list price. Basically for the month of June, G.M. will give its cars away. And the worst is yet to come: Toyota is on pace to pass it as the world's No.1 automaker.

For all its struggles, General Motors still sells more cars than anyone else, both in the United States and globally. But its future is almost certainly one of still-lower market share. Last week, my youngest son's public elementary school held a band concert in Bethesda, Md., the sort of trend-setter community that indicates the direction of future sales. Of the 108 vehicles in the school parking lot when the concert started, just 11 bore G.M. badges. General Motors cars still sell well in rural areas and the Midwest. But G.M. keeps losing ground in the leading-edge communities of California, the Northeast Corridor and Pacific Northwest.

Many factors contributed to the General Motors decline -- health care costs, corporate bureaucracy and detachment from the market. (Toyota, Honda and others have long focused their marketing research on California, to be close to the pulse of car culture. G.M. does its big thinking in Michigan, which is a little like studying fashion in Toledo.) Company executives bet heavily that gas prices and poor fuel economy would not dampen enthusiasm for G.M.'s S.U.V.'s and pickup trucks; now, that is happening.

General Motors also declined because of poor quality. But in this spring's influential J.D. Power & Associates automotive workmanship rankings, General Motors rose to No. 2, trailing only Toyota for overall quality. The Buick and Cadillac divisions ranked ahead of Mercedes.

Yet even if a new generation is drawn to G.M.'s products, recovery of its former position seems unlikely. Other brands have improved, too: J.D. Power estimates that for the auto industry overall, manufacturing defects declined 32 percent since 1998 alone.

There is also great pressure to hold prices down, which is bad for companies like G.M. with vast amounts of overhead. According to the consumer price index, new cars and light trucks today cost less in real-dollar terms than in 1982, despite having air bags, antilock brakes, CD players, power windows and other features either unavailable or considered luxury options back then.

This means that during the very period that General Motors has declined, American car buyers have become better off. Competition can have the effect of "creative destruction," in the economist Joseph Schumpeter's famous term, harming workers in some places, while everyone else comes out ahead.

FOR instance, the same week that G.M.'s cut made the front pages, DaimlerChrysler announced it would invest $40 billion in North American operations over the next five years, including building a new assembly plant in Illinois and expanding factories in Ohio and Michigan.

According to a study by the Association of International Automobile Manufacturers, non-Detroit automakers have in the last two years created 55,000 new factory jobs in the United States. Today just under 50 percent of the "foreign" cars sold in America are made here, with BMW, Honda, Nissan, Toyota and others operating large factories in Alabama, California, Indiana, Kentucky, Mississippi, Ohio and Tennessee. About 800,000 passenger vehicles are expected to be manufactured this year in Alabama, all for global brands; cars have become to the state's economy what cotton once was.

As it continues to shrink, G.M. may serve as an exemplar of what the world economy will do in many arenas -- knock off established leaders, while improving quality and cutting prices. In their 2001 book "Creative Destruction," Richard Foster and Sarah Kaplan, analysts at McKinsey & Company, documented how even powerhouse companies that are "built to last" usually succumb to competition.

Competition can be a utilitarian force that brings the greatest good to the greatest number. Someday when the remaining divisions of General Motors are bought by some start-up company that doesn't even exist yet, try to keep that in mind.

Gregg Easterbrook, a fellow at the Brookings Institution, is the author, most recently, of "The Progress Paradox."